Saturday, 22 September 2012

Kivalina loses, climate change lawsuits will .... continue?

In Native Village of Kivalina v, ExxonMobil, the village of Kivalina sought damages against ExxonMobil and a 21 other oil companies and electricity generation companies for contributing to global climate change and causing the breakup of their village, which has become uninhabitable because of receding ice and softening permafrost. Apart from the usual tort claims like private and public nuisance, Kivalina alleged that the defendants conspired to mislead the public about climate change, in part by contributing to organizations that have demonstrably propagated misinformation about the causes of climate change. The Ninth Circuit Court of Appeals upheld a district court dismissal of Kivalina's claims on the grounds that their common law claims are displaced by the Clean Air Act, as held in AEP v. Connecticut 131 S. Ct. 2527 (2011). In a separate concurring opinion, district court judge Philip Pro also held that Kivalina lacked standing to sue.

Climate skeptics and energy companies may herald this as a sign that climate change lawsuits have peaked (at least those from plaintiffs suffering environmental harms from climate change, not necessarily regulated industries challenging regulation), but if I were their counsel, I would advise them to be less sanguine. At bottom, courts do not yet feel that they have the "traceability" of harm from defendants emissions to plaintiffs' harm. I have written myself that even an ideal plaintiff -- an Inuit community not unlike Kivalina -- and ideal defendants -- electricity generating firms, which comprise several of Kivalina's defendants -- would have a hard time winning a private or public nuisance lawsuit. This opinion bears out my original forecast. However, the common law will move forward as the evidence of climate change moves forward, and we can only expect the epidemiological evidence of traceability to improve. As far as the displacement holding that seems more fatal to these kinds of lawsuits, I also think that continued frustration with the Clean Air Act (that is my new prediction) will lead to a re-examination of whether the Clean Air Act truly precludes federal common law actions. There are also state common law actions potentially in play.

I also wrote in 2008 that climate change lawsuits are not really the solution. They are potentially a spur for meaningful legislation such as a carbon tax or cap-and-trade program, but climate change lawsuits like Kivalina are premised upon the falsehood that these energy companies are at the root cause of the problem of climate change. To the extent that they participated in a misinformation campaign, I agree. But the dangerous fiction that these lawsuits promote is that blame for climate change lies with these evil barons. They do not. The fault lies not in our energy companies, but in ourselves. That politicians are still afraid to even say "carbon tax" is evidence of our inherent selfishness and disregard for our own children and grandchildren.

Friday, 14 September 2012

POOF! The Breakthrough Institute makes carbon tax proceeds disappear!

The Breakthrough Institute recently published the summary of an analysis they did on whether a carbon tax would provide sufficient incentives for the continued and hopefully increased deployment of renewable energy sources. The question is a very important one -- carbon tax proposals are coming out of the woodworks, and some, like former Rep. Bob Inglis (R-S.C.), would like to do away with renewable energy subsidies and replace them with a carbon tax. Breakthrough does a fair job of answering a question, and in their words, making an "apples to apples" comparison. We know that the renewable energy production tax credit is 1.1 to 2.2 cents per kilowatt-hour produced, while carbon tax proposals are couched in terms of $ per ton of CO2 emitted. So they do something useful in asking whether say, a $20 per ton carbon tax would serve the same purpose as a 2.2-cent production tax credit. But in their haste to throw cold water on the idea that a carbon tax can replace renewable energy production tax subsidies, they make a terrible error: they argue that a "$20 per ton carbon tax would offer just one-half to one-fifth the incentive of today's zero carbon subsidies — but at nearly 10 times the cost." Their conclusion: subsidizing imposes less cost than a carbon tax.

Huh? My libertarian friends (yes, plural) are wondering how that can be. It is because Breakthrough takes the cost of a carbon tax and the cost of a subsidy as expenditures of equal importance. It is not. In the case of subsidies, it is the U.S. government spending the money, and in the case of the carbon tax, it is consumers that are largely spending the money. I am most assuredly not on Mitt Romney's government-is-the-problem bandwagon, but it is not controversial that government spends its dollars less efficiently than private parties do. There is, beyond any partisan chicanery, a cost to government spending money. The marginal cost of public funds heuristically speaking measures the cost of government raising money to do something. It varies across countries, and across purposes, but it is greater than one. Sometimes we want government to do things, and tolerate its inefficient delivery vehicle, and sometimes we must have government provide things such as police, national defense, schooling, and environmental protection. But if we want a wind power plant to be built, it will cost more for government to raise the money and build it than a private party. Ask Krugman.

But Breakthrough commits a much more obvious and telling error: it fails to account for the net gain of the carbon tax proceeds. Yes, carbon taxes cost consumers money, but they act as if the carbon tax proceeds have no welfare consequences. Under revenue recycling proposals, this is money fed back to households, consumers, corporations, and we could debate about the best place to recycle the revenues. But you can't pretend that has no gain.

On the flipside, subsidizing renewable energy has gains not explicitly recognized by the Breakthrough analysis (that I can tell). It is the money pumped into the economy through firms that operate renewable energy sources eligible for the production tax credit (by the way, did you know that "refined coal" is a qualifying renewable energy source? Look it up -- 26 U.S.C. s. 45(c)(7)). Again, you don't have to be Paul Ryan frothing to make the case that expenditure of government money is not as good as putting money in the hands of energy consumers, which revenue recycling would do.

So if the question is, "could we replace the renewable energy production tax credit with a carbon tax and still have the same amount of renewable energy production?" then Breakthrough convincingly answer the question in the negative. But it is an entirely different matter to say that carbon taxes are not as "effective" in promoting renewable energy than subsidies.